Thank you for your very interesting notes Lyn! ,🙂
And what are your expectations for global liquidity for 2023 and 2024?
Discussion
Not great in the near term. The combination of the Fed doing QT, the Treasury shifting towards longer-duration bond issuance, and China running tight fiscal policy, are all liquidity negative.
I think we grind for a while until something snaps in the Treasury market or something adjacent, and then we do the next leg up in liquidity.
Liquidity bottomed back in Oct 2022 right after 1) the UK bond market outright broke and 2) the US bond market was really wobbly (bad liquidity, high volatility). That was fixed by the Treasury draining its cash account and shortening the duration of its bond issuance.
Big bummer for those who expecting some action for the halving event in 2024..... So this time *is* different..... We will see. For me it does not really matter. Strong hands.
I think there’s bound to be some action some time after halving either way. E.g., a self fulfilling prophecy.
But we do need to keep the macro view in mind, as that determines where the equilibrium of reduced-supply bitcoin would be.
By the time we get to mid 2024 the liquidity situation could be a lot different. Too early to say on timing now.
Could have the halving followed by better liquidity, and thus have another one of those rocket fuel bull runs into 2025.
I think that is probably about right for how much of the supply of dollars that they have to burn before the money gets back into sync with commodity demand. And yep, this time is different, previously on logarithmic scaling it has looked like bitcoin has been wilting, but that's just because the economy is tanking. A rocket fuel powered race for dollar hedges once the spigot starts up again seems very likely indeed.
Stack sats and stay alive. Timing is impossible because if we knew ahead of time, that in itself would change the timing, and we wouldn’t know.
US elections next year too (probably UK also)...
The last ATH was a good while after the halving. So I’d expect it to break 69k late 2924 at the earliest or some time in 2025.
Doesn’t SP500 also follow M2 Money Supply?
1. **Correlation ≠ Causation**: Even if the S&P 500 and the M2 Money Supply have moved in tandem over certain periods, it doesn't necessarily mean one causes the other. There could be third factors influencing both or the correlation could be coincidental.
2. **Potential Mechanism**: An increase in the money supply can lead to lower interest rates, which in turn can make borrowing cheaper for companies and consumers. Cheaper borrowing can stimulate economic activity and boost corporate profits, which could potentially drive stock prices higher. Additionally, lower interest rates can make bonds and other fixed-income assets less attractive relative to stocks, leading to increased demand for equities.
3. **Inflation Considerations**: An increase in the money supply can also lead to inflationary pressures. While in the short term, inflation might not have a direct negative impact on stock prices, prolonged periods of high inflation can erode purchasing power and impact corporate profitability.
4. **Other Factors**: The stock market is influenced by a myriad of factors, including but not limited to corporate earnings, geopolitical events, technological innovations, and investor sentiment. The money supply is just one of many factors that can influence the direction of stock prices.
5. **Empirical Observations**: Over the past several decades, there have been periods where the growth of the M2 Money Supply and the performance of the S&P 500 seemed to correlate. Especially during periods of aggressive monetary policy interventions, such as the Quantitative Easing programs post the 2008 financial crisis, there has been a noticeable increase in both the money supply and stock market valuations.
6. **Long-Term vs. Short-Term**: While there might be short-term correlations, over longer periods, the relationship might not hold as consistently. Factors like technological advancements, demographic shifts, and changing global dynamics can play a more dominant role in shaping stock market performance over the long run.
Thanks for the insights, Lyn!
And for everyone else like me who needed that last paragraph elaborated on: https://chat.forefront.ai/share/df243096-8769-4134-be66-5ae37e19c10c
do you have a top 3 possible catalysts for the crash that can finally break the camel's back? there are so many piling up, china slow down, Ua war, BoJ, CRE...
When we think about global liquidity, am I right in saying China's M2 is greater than the US? And, isn't China encouraging loans and growth in money supply at present?
What could be very tough to analyze in bitcoin is that, while we’re living in a very tight and low liquidity global market, those with liquidity or things to sell/swap, once they identify as NEEDING bitcoin in the face of growing economic, USD, global asset decay, all bets are off.
Do we know what happened when oil became a commodity, regardless of global liquidity? I guess we also can have a tough time comparing bitcoin to any other money/commodity situation (gold perhaps, but trying to break down the history of when gold was deemed valuable and what happened there we just don’t have data for going back hundreds and hundreds of years).
You know the old adage.
This is good for bitcoin.
Lyn is the US bond market not really wobbly now?